digital garage, inc. · digital garage, inc. - 2q of fye june 30, 2012 - financial report ....

Digital Garage, Inc.- 2Q of FYE June 30, 2012 -

Financial Report

February 10, 2012

Contents

Mission and Business Model ・・・・・・・

3

Group Financial Performance Review ・・・・・・・

6

Second Quarter FYE 2012 Segment Performance Review ・・・・・・・

16

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

Mission & Business Model



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Digital Garage creates innovative business “context” for the new internet age and provides unique business solutions for new lifestyles, society and industries by linking:

RealLocal

MarketingPresent

&&&&

CyberInternationalTechnologyFuture

Context CompanyContext Company

DG’s Mission


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★ Information Technology

★ Marketing Technology

★ Financial Technology

Produce and incubate Internet businesses with optimal use of our three core strengths: IT, MT and FT

DG’s Business Model

IT

FTMT

Group FinancialPerformance Review



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Investment Highlights

II

I

III

Formation of U.S. strategic base and creation of agile development network

Group performance on par with expectations

Launch of incubation center in San Francisco, U.S.

- New Context, Inc. founded in San Francisco, U.S. as DG's incubation strategy base(fully funded by DGUS; in operation under local management)

- Acquisition of two Agile Development companies in U.S./Singapore

- Steady growth posted in Hybrid Solutions- Q1-Q2 cumulative forecast achieved despite scheduled stock sale in Q2 being delayed to Q3 or later

- Global incubation base opened in central San Francisco area- Global incubation network connecting MIT (Boston), Singapore and Tokyo established

Initiation of Global Incubation StrategyFormation of U.S. Strategic Base and Creation of Agile Development Network


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Cumulative Period Performance Summary for Second Quarter FYE 2012 (Consolidated)

(¥ million)

Cumulative Q2 FY 2011

Actual

Cumulative Q2 FY 2012Initial Forecast Actual

Net sales

Operating incomeOrdinary income

Net income

6,000

300

700

550

+297

+2

-35

+60

4,983

-181

213

158

Actual vs.Forecast(Amount)

Year-on-Year (Amount)

+1,314

+483

+452

+452

6,297

302

665

610

■ Net sales up 26.4% year-on-year; operating income profit turnaround up 483 million yen year-on-year

■ Ordinary income included equity in earnings of affiliates (Kakaku.com and others) of 451 million yen as non-operating income, loss on foreign exchange of 39 million yen, and stock issuance cost of 45 million yen, posting 665 million yen

(up 310% year-to-year; increase of 452 million yen)■ Q2 net income 610 million yen (up 452 million yen year-on-year; exceeding initial forecast

by 60 million yen) due in part to introduction of consolidated taxation system■ Year-end dividend payment of 1,000 yen/share expected

Cumulative Q2 FYE 2012 Performance Net profit for Q2 exceeded initial forecast


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Comparisons of Consolidated Performance

Semiannual Comparisons of Consolidated Net Sales and Operating Income

Net sales Operating income(¥ million)

FY2011 FY2011 FY2012FY2012 FY2010FY2010

3,854

4,4934,983

6,084 6,297

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

July – December

-443

316 302

-517

-181

-600

-500

-400

-300

-200

-100

0

100

200

300

400(¥ million)

- Upward trend maintained due to steady growth posted in Hybrid Solutions- Significant year-on-year improvement in operating income despite scheduled stock sale

in Venture Incubation being partially delayed

January – June

July – December

January – June

July – December

July – December

January – June

July – December

January – June

July – December


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Segment Data for Second Quarter FYE 2012 (Consolidated)

(¥ million) FYE 2011

Cumulative Q2

Net sales

Operating income

4,389

298

Net sales 240146

FYE 2012Cumulative Q2

5,077528

570328

Hybrid Solutions

Venture Incubation

Year-on-Year (Amount)

+687

+230

+330

+182

Net sales 353

-120

650- 42

Media Incubation

+297

+78

- Operating income per segment is based on figures prior to elimination or Group deduction- Changes in business segments are not reflected (refer to Pages 10-11 in Q2 FY 2012 financial results briefing)

Operating income

Operating income


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3,5044,023

4,3894,863

5,077

0

1,000

2,000

3,000

4,000

5,000

6,000

84 67

298336

528

0

100

200

300

400

500

600

Semiannual Comparisons of Consolidated Segment Net Sales and Operating Income


FY2011 FY2012

Hybrid SolutionsHybrid Solutions

Segment Performance Highlights: DG&Ibex Company/e-context Company- Growth driven by Web marketing businesses (Internet advertising); social media-based promotions expanded- Increase in settlement transactions in gaming/travel sectors

FY2010FY2011 FY2012FY2010

July – December

January – June

July – December

January – June

July – December

July – December

January – June

July – December

January – June

July – December


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344

468

353

281

650

0

100

200

300

400

500

600

700

-75

-33

-120

-98

-42

-140

-120

-100

-80

-60

-40

-20

0

Media IncubationMedia Incubation


FY2011 FY2012FY2010FY2011 FY2012FY2010

Segment Performance Highlights: Media Incubation Headquarters/CGM Marketing, Inc.- Steady growth in official Twitter advertising and point mall services- Earnings loss reduced despite staff expansion for cultivating new localized media

July – December

January – June

July – December

January – June

July – December

July – December

January – June

July – December

January – June

July – December



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7 0

240

940

570

0

100

200

300

400

500

600

700

800

900

1,000

-54

146

542

328

-90-100

0

100

200

300

400

500

600

Venture IncubationVenture IncubationNet sales Operating income(¥ million)

FY2011 FY2012FY2010FY2011 FY2012FY2010

Segment Performance Highlights: DG Incubation, Inc./Open Network Lab (Onlab)

- Investments in overseas ventures actively pursued; global incubation accelerated (promotion of overseas business launch by Onlab graduates)

- Annual forecast remains unchanged despite scheduled stock sale in Q2 being delayed to Q3 or later

July – December

January – June

July – December

January – June

July – December

July – December

January – June

July – December

January – June

July – December



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Financial Summary for Second Quarter FYE 2012: Balance Sheet (Consolidated)

(¥ million) FYE 2011

ActualQ2 FYE 2012

Actual

Current assets

Fixed assets

Total assets

Current debt

+8,788

+510

+9,298

+582

23,133

6,58529,719

10,515

Incl. cash and deposits +5,87810,662

Fixed debt -157435Incl. interest-bearing debt

+2,4648,632

Net assets +8,87218,767Debt/net asset total +9,29829,719

14,345

6,07520,421

9,933

4,784

592

6,168

9,89520,421

Incl. receivables +8455,1964,351

Incl. deposits

-118233351

Year-on-Year(Amount)

Receivables:Payments owed by convenience stores/credit card companies(average payment period: approx. two weeks)

Money held in trust: Payments protected by trustIncl. money held in

trust +1,1883,6892,501

Deposits: Payments temporarily held until paid to e-commerce clients

Incl. interest-bearing debt -1,7947252,519

Capital increase through public offering (July 2011) and Q2 cumulative net income posted

Capital-to-asset ratioFYE 2011 Q2 FYE 2012

48.1% 62.8%

Short-term loan repayment


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(¥ million) FYE 2011Actual

Performance Forecast for FYE 2012

Year-on-Year(Amount)

FYE 2012Plan

Net sales

Operating income

Ordinary income

Net income

11,067

135

972

901

13,800

1,350

2,500

2,100

+2,733

+1,215

+1,528

+1,199

Hybrid Solutions

Media Incubation

Venture Incubation

9,252

634

1,180

634

-218

688

Net sales by segment

Operating income by segment

9,600

2,000

2,200

650

260

1,500

+348

+1,366

+1,020

+16

+478

+812

Hybrid Solutions

Media Incubation

Venture IncubationNo adjustment made to FYE 2012 initial forecast announced in August 2011

Second Quarter FYE 2012Segment Performance Review



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DG's Unique Incubation Model with Enabling Platform

DG continues to incubate and offer original internet services using unique enabling platform since earliest days of Internet

Enabling Platform/Two Profit Bases

Settlement infrastructureAdvertising/promotion

1995-2000 2000-2008 2008-

Advertising and promotion/solutions Social media marketing e-commerce/social media commerce

Over 700 national clientsAnnual transactions: 116.3 billion yenNumber of affiliated websites: 41,617

Twitter

(FYE 2011)(FYE 2011)

Formation of Agile

Developmentnetwork


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Formation of U.S. Strategic Base and Agile Development Network

New strategic base in U.S. and global software development network formed to counter bottleneck in global incubation

U.S.U.S.AsiaAsiaEuropeEurope

San Francisco: Strategic base for global incubation New Context

Ohio/Edinburgh: Agile Development with advanced multi-language support

Singapore: DG's acquisition of Asia operation base of world's leading agile development company New Context Singapore

San Francisco: Strategic base for global incubation New Context

Ohio/Edinburgh: Agile Development with advanced multi-language support

Singapore: DG's acquisition of Asia operation base of world's leading agile development company New Context Singapore


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U.S. Office: Organization

Acquisition of property for San Francisco Incubation CenterGlobal incubation in coordination with Agile Development network launched

EdgeCase, LLC New Context Singapore

Digital Garage, Inc.

Digital Garage US, Inc.

Digital GarageDevelopment, LLCNew Context, Inc.

U.S. holding company

U.S. strategic business company

U.S. asset management company

Agile Development companySan Francisco

Incubation Center


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DG's New Global Incubation Ecosystem

Development of global incubation ecosystem that continuously drives acceleration

①Investment

②Business Support

③Monetize

④Return


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VentureVentureIncubationIncubation

Media Media IncubationIncubation

Hybrid SolutionsHybrid Solutions

DG Group Business Segments

III Venture Incubation

IIIIII

IIIIIIIII Hybrid Solutions

Media Incubation

Silicon Valley-type hands-on incubation; support of Japanese startups targeting overseas market; promotion of domestic investment

Incubation of media and app businesses primarily for social media platforms such as Twitter/Twinavi

Hybrid integration of settlement services and media solutions


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Business Overview: Venture Incubation Segment Performance

Net sales Operating income

Full-Year FYE 2012 Forecast

I Venture Incubation

First Half FYE 2012 Actual

First Half FYE 2011 Actual 240 million yen

570 million yen

2,200 million yen

146 million yen

328 million yen

1,500 million yen

➤ DG Incubation, Inc.

➤ Open Network Lab, Inc.

Venture business incubation through investment and development

Internet-based business accelerator program for entrepreneurial engineers

http://www.dgincubation.co.jp/index.html

http://onlab.jp/


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Venture Incubation: Business Strategy

Investment/incubation of prospective overseas ventures Japanese market localization and

overseas-based globalization support

Middle/

later stage

IPO

Overseas venturesStage-specific investment

Investment/incubation of prospective domestic ventures and Japan-based

globalization support

Active investment in overseas ventures based primarily in Silicon Valley andIncubation of high-quality Japanese ventures

Incubation activities in coordination with global development network/San Francisco Incubation CenterEstablishment of investment and incubation models for venture import/export and globalization

http://onlab.jp/

Import model Export model

M&A

Incubation of prospective domestic ventures

at seed stageAcceleration of global incubation

Use of Agile Development network

Coordinated activities with new Incubation Center

Seed stage

Early stage

http://www.dgincubation.co.jp/index.html


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Highlights and Forecasts

Online development/retail service provider for educational contents

Turkish company with headquarters in San Francisco

Direct Investment

CRM system provider for Web and app services

Irish company with headquarters in San Francisco

Completion of dream team of Silicon Valley angel investorsInvestments made in two prominent Silicon Valley angel fundsActive investments pursued for ventures related to recent trends such as Online to Offline social media and big data

SV Angel 500 Startups

⇒ Capacity to offer investment and incubation with global perspective to both technology/design-oriented ventures beyond Silicon Valley

Technology-oriented fundInvestments tend to focus on startups with existing products and salesActive investments in Silicon Valley-area businesses

Design-oriented fund

Most startups participate upon completion of product design

Extended network in Asia and South America


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Developments in Venture Incubation

Seed acceleration program for engineers and entrepreneurs who create global businesses originating from Japan, offering support for worldwide expansion in collaboration with global development network and San Francisco Incubation Center

Open Network Lab

Existing functions Additional functionsFunctions of Open Network Lab

1. Seed accelerator (startup support program)2. Startups event organizer3. Investor

4. Global development supporter in collaboration with New Context, Inc.

5. Provider of U.S. operation base at incubation center.

＋＋

Number of applicants for startup support program

Prospective startups in Silicon Valley launched by program graduates

Summer 2010 Winter 2011 Summer 2011 Winter 2012


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Business Overview: Media Incubation Segment Performance


Media Incubation



First Half FYE 2011 Actual 353 million yen

650 million yen

2,000 million yen

-120 million yen

-42 million yen

260 million yen

II

➤ CGM Marketing, Inc.Twitter- and CGM-based ad product development, twinavi operation and Twitter business support

➤ Media Incubation DivisionLocalization of overseas media and promotion of DG's original media development


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Media Incubation: Business Strategy

Media Media ContentsContents

etc.

SolutionsSolutions

Poin

t Mal

l

Global media acceleration in tandem with global incubation strategy

Global media acceleration in tandem with global incubation strategy

III

Ongoing cultivation of next-generation seed media in coordination with venture incubation

Ongoing cultivation of next-generation seed media in coordination with venture incubation

I

Acceleration of media ventures using lean startup approach and agile development network

Acceleration of media ventures using lean startup approach and agile development network

II

New media development in tandem with DG global incubation strategy;Acceleration of media incubation using global development network

Multidirectional media incubation

II

III

Venture IncubationVenture Incubation

I


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Highlights and Forecasts: Media Incubation Headquarters

◆ Development resources gained through acquisition of two leading agile development companies overseas- Acceleration of media incubation achieved with addition of software development capability that counters bottleneck

in localization process

◆ Release of social app development platform Twinavi Apps - Fee-based businesses expanded with social/real-time apps

linked with

◆ Steady growth of point mall services (i.e., development/operation of affiliate malls linked with point programs)

- Mall media network with over 90 million members established through partnerships with businesses with customer information databases such as credit card companies

- Amount of mall transactions increased by 220% year-on-year

◆ Marketing/operational support for imported media ventures that follow success of

◆ Implementation and global application of DG's original media and Onlab businesses

Further promotion of media export in addition to imported media development

Media Incubation Division

Twitter

Twitter

Amount of mall transactions/ number of affiliate websites

Mid- and long- term strategy Mid- and long- term strategy

215 %(Year-on-Year)

215 %(Year-on-Year)

FY2010 FY2011 FY2012


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◆ Official PC/mobile advertising businesses for maintained steady growth- Record-high growth in sales posted despite decrease in

sell-through due to inventory adjustments for UI renewalin December

- Cross-sell with new ad products under development with Dentsu Group

◆ Further expansion of with utility companies- System wide implementation by utility providers

such as Tokyo Electric Power Co.; stable profitability also achieved due to increase of long-term contracts

◆ Renewal of Twinavi as social website- Functionality renewed upon launch of social app businesses, evolving from navigation website to social website

Highlights and Forecasts: CGM Marketing, Inc.

- Diversify -related ad products/profit-earning opportunities- Develop next-generation ad products that match consumers' multi-social media use

Development of new media services together with continuous expansion of monetization

CGM Marketing, Inc.

Twitter

Twitter

Twitter

No. 1 social media status maintainedNo. 1 social media status maintained

Mid- and long- term strategy Mid- and long- term strategy

Source: Nielsen/NetRatings NetView

First Half FYE 2012 PC-access visitors

Twitter

facebook

mixi


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Business Overview: Hybrid Solutions Segment Performance


Hybrid Solutions



First Half FYE 2011 Actual 4,389 million yen

5,077 million yen

9,600 million yen

298 million yen

528 million yen

650 million yen

III

➤ DG&Ibex Company

➤ e-context Company

Marketing promotion support, media development and web solutions

E-commerce settlement platforms


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Business promotion designed for new contact points with consumers such as smartphones

Hybrid Solutions: Business Strategy

1. Adaptation to latest web trends

1. Adaptation to latest web trends

3. Expanding new businesses using capital increase

3. Expanding new businesses using capital increase

Further acceleration of Hybrid Solution areas (advertising/settlement) based on three growth drivers

1. Efficient adaptation to latest web trends via DG's new media products/global development network

2. Swift realization of new opportunities created by smartphone market3. Expansion of new businesses using capital increase

Expansion into new settlement areas using capital increase

Development of settlement/solution services that are linked to DG's new media products and global agile development network

Development of new settlement services for smartphones where market expansion is expected

Three medium/long- term growth drivers

SettlementSettlement

SolutionsSolutions

Hybrid SolutionsSegment

2. Realizing smartphone market opportunities

2. Realizing smartphone market opportunities


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DG&Ibex Company Highlights

Sales

Profit per client Number of clients238

106% (year-on-year)

Total sales3.54 billion yen121% (year-on-year)


Upward trend in previous year maintained; record-high sales posted

Growth factorsHealthy performance in industry-specific solution development based on DG's expertise in social media

Web marketing areaSuccess in market specialization strategy (e.g., cosmetics, financing) resulted in 42% growthyear-on-year

General promotion area Efforts focused on securing new clients successfulUnit profit and margin per client improved due to higher recognition of DG's digital planning capability

Development and promotion of new strategic productsDevelopment of industry-specific products that integrate cyber and real media (O2O) pursued (partnership with Tabelog launched)Business planning for new opportunities created by smartphone market

14.9 billion yen114% (year-on-year)

142％Year-on-Year

142％Year-on-Year

FY2012FY2011FY2010


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e-context Company Highlights

Number and amount of transactions both set new record high

Growth factorsSteady growth in both ongoing focus areas and new businesses

Success in specialization for focused areas resulted in improved performance in existing businesses

Credit card settlement posted 260% growth (year-on-year) Upward trends in main areas (gaming/travel) maintained

Joint businesses with Kakaku.com remain successfulSettlement business with escrow services AnshinShiharai further expanded by securing two companies with highest transactions

New business opportunities explored through launch of new business

Enhanced settlement capabilities offered with BtoCmoney transfer services expanded business opportunities

Number of transactions

Number of transactions

10,71 million142% (year-on-year)

Total amount of transactions

71.4 billion yen129% (year-on-year)

Number of affiliated websites

45,155117% (year-on-year)

262％Year-on-

Year

262％Year-on-

Year

117％Year-on-

Year

117％Year-on-

Year

FY2012FY2011FY2010

Please note that the business forecasts and strategies covered in this material are based on our current evaluation and future results may vary significantly depending on unforeseeable events or circumstances.

digital garage, inc. · digital garage, inc. - 2q of fye june 30, 2012 - financial report ....

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